Vertical fiscal externalities and the environment

Christoph Böhringer, Nicholas Rivers and Hidemichi Yonezawa

Journal of Environmental Economics and Management, 2016, vol. 77, issue C, 51-74

Abstract: We show that imposition of a state-level environmental tax in a federation crowds out pre-existing federal taxes. We explain how this vertical fiscal externality can lead unilateral state-level environmental policy to generate a welfare gain in the implementing state, at the expense of other states, even absent any environmental benefits. Using a computable general equilibrium model of the Canadian federation, we show that vertical fiscal externalities can be the major determinant of the welfare change following environmental policy implementation by a state government. Our numerical simulations indicate that – as a consequence of vertical fiscal externalities – state governments can reduce greenhouse gas emissions by over 20 percent without any net cost to themselves.

Keywords: Fiscal externality; Climate policy; Federalism; Computable general equilibrium (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (16)

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Related works:
Working Paper: Vertical fiscal externalities and the environment (2016)
Working Paper: Vertical Fiscal Externalities and the Environment (2014)
Working Paper: Vertical fiscal externalities and the environment (2014)
Working Paper: Vertical fiscal externalities and the environment (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:77:y:2016:i:c:p:51-74

DOI: 10.1016/j.jeem.2016.01.002

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